Mon, Oct 04, 2004 page12

• Chirac enters battle for Chinese aviation market

  SKY-HIGH STAKES With China requiring an estimated 2,000 airplanes over the next two decades, Europe's Airbus and the US' Boeing are jostling to get a foot in the door

  • AFP
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  French President Jacques Chirac's trip this week to Beijing will bring into sharp focus the battle between the world's biggest aircraft makers, Europe's Airbus and Boeing of the US, for the prized Chinese market.

  Airbus Industrie, based in southwestern France, is hoping for an order of a dozen planes to emerge from the trip, French presidential sources said.

  China could become the 14th customer for Airbus's future A380, buying five to 10 of the double-decker superjumbos, which could be delivered before the Olympic Games are held in Beijing in 2008.

  Such a purchase would not only boost Airbus's already impressive A380 orders book, now at 129 firm orders, but would also give the European planemaker a symbolic and commercial lead over its US rival in the much sought-after Chinese market.

  "In terms of orders over the past three years, the two companies are equal," said Philippe Gassmann, the head of technology at the French economic mission in Beijing.

  Boeing, which for the first time was last year knocked out of pole position by Airbus for sales of planes with more than 100 seats, has not yet received any Chinese orders for its next-generation 7E7 Dreamliner jet.

  The 7E7 is a medium-haul, fuel-efficient model that the US firm says is the future of civil aviation. Airbus, in contrast, is betting its future on the long-haul A380.

  Chirac, who will be in China from Oct. 8 to Oct. 12, will be accompanied by a bevy of French business leaders hoping to clinch deals in areas ranging from high-speed rail links to the construction of nuclear reactors.

  But the competition is particularly intense for the Chinese market because the stakes are so high.

  The market will require over the next two decades 1,295 planes, according to the airplane maker China Aviation Industry Corporation (AVIC 1). Boeing estimates it at 2,127 and Airbus at 1,600 aircraft, according to the French economic mission.

  These giddying estimates are based on strong growth by the three main Chinese airlines -- Beijing-based Air China, China Eastern in Shanghai, and China Southern based in Guangzhou -- but also on expansion at smaller Chinese companies such as Hainan Airlines, Shanghai Airlines, Xiamen Airlines and China Yunnan.

  They are also based on liberalization of the sector as well as on the expectation that Chinese companies will sign up to commercial alliances with the major international airlines.

  "Eastern and Southern are both already listed" on the stock market, Gassmann said. "As for Air China, it wants to be listed soon."

  Since 2002 legislation allows foreign investors to acquire up to 49 percent of a Chinese company's capital, with no one outsider taking more than 25 percent of the company.

  "Each of the three companies is aiming to join an international [airline] alliance," Gassmann added. "And each international alliance is also trying to get a foothold in China."

  China Southern was the first to sign such a deal, allowing it to join in 2005 the Skyteam alliance that includes Air France and the US carrier Delta Airlines.

  To achieve their aims in China, Airbus and Boeing are using the same methods -- both are lobbying intensely and both are signing industrial partnership deals with Chinese companies.

  Airbus said in June that parts of the landing gear for the A380 would be made in China, as would certain doors to be made for the cargo versions of the A330 and A340 planes.

  Boeing for its part has selected two Chinese parts suppliers for its future 7E7 in contracts believed to be worth hundreds of millions of dollars.
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